10 Questions For Michael Dell About Going Private

Private Eyes

Dell reinvented the supply chain and pioneered selling direct to its customers. Times have changed; now Dell CEO Michael Dell is preaching the channel, saying indirect commercial sales are more profitable than direct. Dell's future, he told CRN, is dependent on solution providers.

CRN sat down with Michael Dell and Frank Vitagliano, vice president of Dell's channel sales, Tuesday at the Best of Breed conference, hosted this week in Tampa, Fla., by CRN publisher The Channel Company. In a one-on-one session behind closed doors, we asked them what the future holds for a private Dell just weeks before it officially exits from Wall Street's spotlight.

How Does It Feel To Take The Company You Founded Back?

Liberating, energizing. Particularly, after the process we have been through. It was complicated, and it had its moments. We believe we have the right strategy. With being a private company, we can accelerate the strategy. We can be more aggressive. We can continue investments in solutions, R&D, software and focus on emerging markets and data center. We can be more aggressive.

-- Michael Dell

Talk About The Downside Of Going Private, Retaining Talent And Access To Capital Markets For Investments?

Going private is no detriment to keeping and attracting talent. No problem. We keep good people with things comparable to stock options such as cash.

The financial environment has been very favorable. The interest rate environment has been very attractive. We could have raised millions more dollars, but we didn't need it or want it. The capital structure we have is better. It is more flexible and allows us to invest more in channel partners, R&D and growth now that we don't have this short-term pressure.

-- Michael Dell

Dell Doesn't Have Wall Street Pressures, But It Still Has Pressure To Payback Private Debt.

The company has generated in the last 12 months about $4 billion of free cash flow. In the last five years, we generated $22 billion of free flow. So, we generate $4 billion in cash flow in the last 12 months, and the interest expense on the debt that we have is about $720 million. So, we have a very comfortable cash flow.

Our equity investors including Silver Lake have significant capital if we want to make additional investment or acquisition. Substantial capital we can add to the company.

-- Michael Dell

What Does The Dell Brand Look Like In Three Years?

The brand is a way to communicate the promise of a company and its value. ... We like to show off our brand with yours. -- Michael Dell

From a business standpoint, ... the partner is the brand. .... The customer cares less about the brand and more about what the value to me is and is this someone I can trust. ... And as you go up the stack, ... that becomes less important; it becomes less relevant ... for the large companies. They are concerned about the vendor brand because of the technology and strategy and where it's going. ... The vendor is always the most important brand to the customer. What the customer goes to them for is 'look you are my advisor here' when they are walking in and leading with Dell. ... What we are ultimately in it to do is satisfy the end customer, and if we do that, it's all moot. Key to the relationship is VAR. He knows what we do, he knows our business and he is responsive. That's how relationships work. Partners have done that in scale. Relationships are around people and knowledge. -- Frank Vitagliano

Which Is More Profitable For Dell: A Direct Sale Or An Indirect (Partner) Sale?

Indirect sale is more profitable. Because of the mix of products and solutions we have now, the indirect channel sale is more profitable than direct.

Channel partners are selling more software, more storage, more network, more servers. Right now, there is not a lot of margin with client. -- Michael Dell

The partner has been selling solutions, not specific components, since day one. They are very good at selling all components, but even better at selling entire solutions. The second reason why indirect is better is because solution providers are paid for sales by percent of gross margin. They are incented to drive the most profitable deals. -- Frank Vitagliano

How Do Can You Make Indirect Sales More Profitable For Dell And Partners?

We have 140,000 partners. We want to go deeper with partners. We want to evolve those relationships. We are partnering to do a lot more business together -- to be more deeply integrated. Ideally, we understand a partner's capabilities and work jointly, planning and operating as one team.

-- Michael Dell

Are The WinTel Days Going Away? Are They Already Behind Us?

You have a broader set of choices and drivers in the environment out there. But, let's not forget that we have an enormous amount of companies that have Microsoft deeply embedded into their infrastructure and that's not going to go away for a long time. We are absolutely committed to growing and supporting that business. But, we also offer our customers choice.

-- Michael Dell

How Much Quicker Can Dell Change Direction, Make Decisions As Private Company?

Going private isn't like everything happens instantaneously. But, you can absolutely accelerate decision-making and simplify things. For example, we built up a lot of reporting inside the company over time. And, you look at all this reporting and say what are we doing here? Now we can say which of this stuff do we really need and what's important? Growth and cash flow – everything else, forget about it.

Being private simplifies everything, streamlines everything, and we can go faster.

-- Michael Dell

Dell Reinvented The Supply Chain And Pioneered The Buy Direct Model. What Can It Do For The Channel?

Part of our business to the solution providers leverages our Dell PartnerDirect website. Partners are dealing directly with us online 24/7. What we are doing is making it easy for partners to do business with us any way they want. That doesn't always mean calling us.

We are enhancing our Partner Premier pages. Those partner pages are significantly better from a productivity standpoint. We are seeing a 20 percent increase in use of Partner Premier pages. This is a big business for us in the U.S.

-- Frank Vitagliano

What Is A Private Dell's Biggest Challenges?

We are not too worried. We are feeling pretty good.

I think one of the biggest challenges for Dell and other companies is asking ourselves 'what happens to the PC space?' My point of view is the PC is evolving. The obituary of the PC has been written 25 times. The term post-PC era was first coined in 1999 by IBM. At the time, there were about 120 million PCs sold per year. Now there are 450 million PCs sold per year. So the post-PC era has been better for the PC than the pre post-PC era.

But, the PC is a challenge. We are assuming that that business will contract. We have very modest assumptions for that business. Dell will be a consolidator and look to gain share. But, PC is not our primary objective. Our primary [objectives are] grow, enterprise storage solutions, security software. Those are things are partners are helping us do.

-- Michael Dell